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Corporate Social Responsibility and Access to Finance
Abstract
In this paper, we investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to a) reduced agency costs due to enhanced stakeholder engagement and b) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. Moreover, we provide evidence that both of the hypothesized mechanisms, better stakeholder engagement and transparency around CSR performance, are important in reducing capital constraints. The results are further confirmed using several alternative measures of capital constraints, a paired analysis based on a ratings shock to CSR performance, an instrumental variables and also a simultaneous equations approach. Finally, we show that the relation is driven by both the social and the environmental dimension of CSR.
... Recent evidence, however, appears to lend support to the stakeholder maximization view of CSR (e.g., Attig et al., 2013; Cheng et al., 2014, among others). 3 For instance, while financial slack is relevant for CSR spending, Cheng et al. (2014) show that CSR lowers financial constraints. ...
... This research question appears to offer a rich scholarly opportunity in part because financial constraints represent an important source of heterogeneity in CSR and investment in CSR tends to be more sensitive to capital constraints (e.g. Cheng et al., 2014;Hong et al., 2012). Yet, empirical literature has not settled on the importance of financial constraints in driving CSR and the limited related evidence continues to blur the direction of causality. ...
... It calls into question recent evidence that superior CSR performance leads to better access to finance and cheaper financing costs (e.g. Attig et al., 2013;Cheng et al., 2014;El Ghoul et al., 2011;Goss & Roberts, 2011). It is indeed possible that the extent of financing frictions and pressing external financial needs of the firms shape the link between CSR and financial performance. ...
This study fills an important gap in the literature by providing causal evidence of the impact of relaxing financial constraints on corporate social responsibility (CSR). To isolate this causal link, we examine the enactment of anti-recharacterization laws in some U.S. states, an exogenous shock that has strengthened creditor rights and eased financial constraints of the treated firms. Our difference-in-difference analysis suggests that relaxing financial constraints leads to higher CSR. This evidence is more pronounced in financially constrained firms, firms with more analyst dispersion and increased volatility of cash flows. We also find that the most impacted firms are those with increased post-shock debt financing. In sum, our evidence suggests that easing access to external finance drives corporate goodness, in particular in firms that value external financing.
... On the other hand the companies which are low in ESG practices are associated with higher financial risk and higher legal fines and law suits (McGuire et al., 1988). The investors are willing to invest more in companies that are higher in ESG practices; thus, the capital constraints for these companies are lower in capital markets (Cheng et al., 2014). Similarly, the company reputation can also be enhanced by better ESG practices (Cornell & Shapiro, 1987); it can increase the brand value and also improve the product brand image (Brown & Dacin, 1997). ...
... The study used the purposive sampling technique and selects all those companies as sample which are engaged in ESG activities and are also listed on Refinitiv Eikon database (Refinitiv, 2019). The ESG data was collected from Refinitiv ESG index (Garcia, Mendes-Da-Silva & Orsato, 2017;Cheng et al., 2014); while, the data of firm financial risk and control variables were extracted from datastream which are also available on Refinitiv Eikon database. ...
... Refinitiv Eikon is a highly recognized database in the industry worldwide, and it has more than 600 different ESG metrics, which cover more than 85% of the global market cap (Refinitiv, 2021). Refinitiv Eikon provides the ESG informations in systematic, objective, transparent, comparable and auditable form; which are comprehensively used to assess the corporate performance (Cheng, Ioannou & Serafeim, 2014). More than 150 content research analysts collect the ESG data across the globe; these analysts collect ESG information's from firm websites, firm CSR reports, firm stock exchange filings, firms annual reports, NGO websites and other news sources; and put these information's on Refinitiv ESG index (Refinitiv, 2021). ...
The study's main purpose is to investigate the relationship between environmental, social and governance (ESG) practices and firm financial risk. The study used the data of 1042 companies of 26 emerging countries for the period of 2010 to 2019. The secondary data retrieved from the Refinitiv Eikon database was used to analyze the association between ESG practices and firm financial risk by employing the Feasible Generalized Least Square (FGLS) models. In this study, the aggregate ESG scores and pillar-wise environmental, social and governance scores were used. Three different risk proxies, such as systematic, idiosyncratic and total risks were used to measure the firm financial risk. Results showed a significant and negative relationship between aggregate ESG scores and firm systematic risk, idiosyncratic risk and total risk. Similarly, pillar-wise environmental, social and governance scores have also significant and negative impact on firm systematic risk, idiosyncratic risk and total risk. The findings of the current study have provided a framework and guidance to the companies and investors of emerging countries that firm financial risk is an essential determinant of cost of capital, which reduces the firm financial risk. Moreover, the firms that are using the ESG practices can reduce their financial risk; which ultimately increases the firm performance/value that would attract more investors to invest in these firms. Besides this the current study has also useful implications for regulators, policy makers, portfolio managers and government agencies in emerging countries.
... Therefore, CSR investment activities have a signaling effect on companies; companies with higher CSR ratings are more willing to disclose their CSR reports to the market (Dhaliwal, Li et al., 2011). Additionally, this disclosure can help lower asymmetric communication between investors and the company (Chen et al., 2009;Cheng et al., 2014;El Ghoul et al., 2011). Kim et al. (2011) demonstrated that the nature of corporate governance in the home countries of international investors affects their portfolio choices abroad. ...
... This results in the reverse phenomenon in the predictability of foreign and domestic shareholding ratios for their respective financial performance during and before the crisis. Moreover, the results verify those of studies on the possibilities of CSR limiting short-term opportunistic behaviors (Benabou and Tirole, 2010;Cheng et al., 2014), thereby reducing losses caused by a volatile business environment. ...
Prior scholars put a lot of effort into exploring the relationship between CSR and financial performance by utilizing financial statistics. However, it is a lack of empirical study about the whole financial environment and discussing its impact on foreign investment. This study analyzes data before and after the 2008 crisis to determine whether: (1) companies that implemented CSR successfully attracted more foreign investment and maintained superior performance during the financial crisis and (2) the CSR and financial performance of companies were influenced by the mediating effect of foreign investment. The results illustrated: (1) the foreign ownership ratio was positively correlated to the quality of the CSR system, (2) CSR exhibited higher financial performance during the crisis; and (3) mediating effect of foreign investment existed between CSR and financial performance, especially during the crisis.
... Finally, we contribute to the literature on bank depositors' behavior and, in particular, their response to banks' involvement in corporate philanthropy. Studies have shown that investors reward firms for their commitment to CSR in the form of lower costs of capital, lower capital constraints, and greater capital inflows (e.g., Chava, 2014;Cheng, Ioannou, & Serafeim, 2014;El Ghoul, Guedhami, Kwok, & Mishra, 2011;Freund, Nguyen, & Phan, 2021;Goss & Roberts, 2011;Hasan, Hoi, Wu, & Zhang, 2017;Heinkel, Kraus, & Zechner, 2001;Hong & Kacperczyk, 2009;Liu, Cheong, & Zurbruegg, 2020;Sharfman & Fernando, 2008). In a banking context, studies have focused on how banks are disciplined in response to changes in reputation (Deng, Willis, & Xu, 2014), transparency (Chen, Goldstein, Huang, & Vashishtha, 2021), and financial fundamental information (Goldberg & Hudgins, 2002;Iyer, Puri, & Ryan, 2016;Maechler & McDill, 2006;Martinez Peria & Schmukler, 2002), while less attention has been given to the way depositors reward banks for their social performance. ...
... Although a closer investigation is outside the scope of this paper, we offer a plausible explanation based on the CSR literature. In particular, studies have shown that engagements in CSR is associated with improved stakeholder relations over the long-term (Choi & Wang, 2009;Gregory, Tharyan, & Whittaker, 2014), which leads to better long run growth prospects (Fatemi, Fooladi, & Tehranian, 2015) and profitability (Eccles, Ioannou, & Serafeim, 2014). In our context, the greater profit potential of donating banks may be a result of their improved reputation due to their charitable activities, which helps attract long term clients with higher profit margins (Wu & Shen, 2013) and reduce non-performing loans (Shen, Wu, Chen, & Fang, 2016). ...
This paper examines the strategic nature of banks’ charitable giving by studying bank donations to local nonprofit organizations. Relying on the application of antitrust rules in bank mergers as an exogenous shock to local deposit market competition, we find that local competition affects banks’ local donation decisions. Using county-level natural disaster shocks, we show that banks with disaster exposure reallocate donations away from non-shocked counties where they operate branches and toward shocked counties. The reallocation of donations represents an exogenous increase in the local share of donations in non-shocked counties for banks with no disaster exposure and leads to an increase in the local deposit market shares of such banks. Furthermore, banks can potentially earn greater profits from making donations and tend to donate to nonprofits that have the most social impact. Overall, our evidence suggests that banks participate in corporate philanthropy strategically to enhance performance.
... Nevertheless, ESG ratings should reduce information asymmetries and increase transparency regarding ESG issues. Since higher ESG transparency improves firm value by decreasing reputational risk, information asymmetries, agency costs, capital constraints, and ultimately, capital costs (Cheng et al., 2014;Erragragui, 2018;Ng/Rezaee, 2015;Yu et al., 2018;Ghoul et al., 2011), companies should benefit from the receipt of an ESG ratingparticularly from the first ESG rating and even when the disclosed information displays weak ESG performance (Eliwa et al., 2021). Not having an ESG rating can be interpreted as very low ESG transparency and, therefore, negatively affects firm value (Wong et al., 2021), i.e., is an idiosyncratic risk. ...
... However, for listed companies the costs associated with receiving an ESG rating are negligible. Since studies on ESG disclosure find that better ESG transparency improves firm value and decreases capital costs (Cheng et al., 2014;Erragragui, 2018;Ng/Rezaee, 2015;Yu et al., 2018;Ghoul et al., 2011), even when the disclosed information displays weak ESG performance (Eliwa et al., 2021), getting an ESG rating appears to resemble free lunchalthough smallfor listed companies and their equity investors. Therefore, the risk-reducing effect of an ESG rating is economically significant. ...
This study analyzes whether stocks of companies with environmental social governance (ESG) rating show lower idiosyncratic risk. The main analysis covers 898,757 company-month observations of US stocks in the period from 1991 to 2018 and controls for stocks' exposure to liquidity, mispricing, innovations in volatility risk, investor sentiment, and analysts' forecast divergence. The main finding is that the receipt of an ESG rating decreases idiosyncratic stock risk. The effect is stronger for stocks that receive a higher ESG rating. Nevertheless, even when companies receive a lower ESG rating, they show significantly lower idiosyncratic risk than stocks without an ESG rating. Furthermore, stocks subject to a negative screen show lower idiosyncratic risk during recessions than comparable stocks with an ESG rating but without a negative screen. The results support the notion that the receipt of an ESG rating decreases uncertainty regarding future stock risk and return and show that ESG ratings and negative screens individually influence stock risk and, therefore, should be considered separately.
... In France, the contradiction between the results of Lakhal (2006) and Ali (2008), is explained by the specificity of the sample, which allows us to examine this relationship. Numerous researchers (Aljifri et al., 2014;Cheng et al., 2014;Al-Maliki et al., 2022) found that the power of the manager enhances the effectiveness of enterprises and their resource distributions. This suggests that firms with powerful CEOs will have good value and survivability. ...
... Model 1 of Table 6 shows that there is a positive and significant relationship between VD and TQ; thus, H1 is supported. This implies that VD increase transparency and raise the firm's value in the short-run and long-run (Cheng et al., 2014). H2 postulates that governance mechanism is positively associated with the value of the firm. ...
Purpose
The purpose of this study is to examine whether voluntary disclosure (VD) and corporate governance (CG) are substitutes or complements to each other in improving firms’ value in a non-Anglo-Saxon setting, namely, France.
Design/methodology/approach
This study uses a sample of 990 listed firms in France from 2010 to 2020 to test the theoretical predictions. A random effect regression and two-stage least squares estimators are used to test the relationships. The results are largely robust across a number of econometric models that take into account diverse kinds of endogeneities.
Findings
This study reveals that VD and CG are positively associated with firm value. The finding also indicates that VD and CG work together as substitutes rather than as complements. Furthermore, the author’s evidence suggests that ownership structure and CEO characteristics are substitutive with VD in their effect on firm value. This evidence is consistent with the view that VD can add value to the firm but only under a number of conditions.
Practical implications
The results shed further light on how a firm could improve its value among stakeholders by designing VD and CG practices effectively. Specifically, as VD generally acts as a substitute to CG, to accomplish their optimal economic outcomes, firms need to be discerning in executing VD and governance practices. In addition, firms have strategic flexibility in constructing VD and governance practices contingent on their own settings. Policymakers, investors and managers could use these results to examine CG and VD practices in France following the implementation of new regulations.
Originality/value
This study extends and contributes to the mixed or equivocal evidence of the relationships between VD, CG mechanisms and firm value. It contributes to the extant literature by first providing additional evidence, which suggests value-increasing effects of better-governed and more transparent firms. Second, this study reconciles extant disparate results by suggesting that VD can substitute CG in improving firm value. These findings have profound implications for policymakers, investors and firm’s managers.
... their corporate sustainability performance (CSP) to stay competitive. High CSP is associated with higher firm performance [3][4][5], easier access to finance [6], and lower cost of equity [7,8]. Hence, the need for examining the effect of CSP on firm investment efficiency in Asia is timely. ...
... [25,33,34] also argued that the implementation of CSP can also reduce asymmetries between firms and suppliers of capital. The usefulness of CSP information to capital providers is evident in reducing the cost of capital [8], increasing access to finance [6], and improving corporate control mechanisms, which prevent managers from expropriating investors' wealth [35]. Managers know more about the firm's CSP engagement in terms of its goal, plan program, and related activities than outsiders, hence information on a firm's CSP can be used as a signal of the firm's expected future prospects between the firm and outsiders. ...
This study investigates the influence of corporate sustainability performance (CSP) on firm value through investment efficiency. By applying a panel regression analysis using a large sample of 26,838 firm-year observations that represent 9218 Asian listed companies over the period of 2012–2019, we illustrate that high corporate sustainability performance (CSP) increases investment efficiency. This result coincides with both stakeholder theory and information asymmetry theory where economic, environmental, social, and governance involvements play a fundamental role in improving firm value. Our results further show that the social dimension significantly improves investment decisions, unlike dimensions associated with environment and governance, which show no significant effect on investment efficiency. These insights about the impact of CSP on investment decisions will be useful to stakeholders, decision-makers, policymakers, as well as academics to improve their awareness of the importance of corporate sustainability practices. Particularly, the positive relationship between the social dimension of CSP and investment efficiency should motivate managers to improve their corporate social responsibility policy formation and implementation, and the management of investment portfolios in enhancing firm value.
... The purposive sampling technique was used to select companies listed in the Refinitiv Eikon database (Refinitiv, 2019). The ESG data was retrieved from Refinitiv ESG (Cheng et al., 2014;Garcia et al., 2017). Similarly, the data of all the proxies of capital market response and control variables were retrieved from Datastream available on Refinitiv Eikon. ...
... Refinitiv is a highly recognized database in the industry worldwide, and it has more than 600 different ESG metrics, which cover more than 85% of the global market cap (Refinitiv, 2021). Refinitiv Eikon provides the ESG information as systematic, objective, transparent, comparable, and auditable, comprehensively used to assess corporate performance (Cheng, Ioannou & Serafeim, 2014). More than 150 content research analysts of Refinitiv trained to collect the ESG data across the globe; these analysts used the information from firm websites, firm CSR reports, firm stock exchange filings, annual reports of the companies, NGO's websites, and other news sources; and put this information's into Refinitiv ESG database (Refinitiv, 2021). ...
This study aims to investigate the impact of ESG practices on the capital market response of emerging countries in terms of market-adjusted returns (MAR), market value added (MVA), and Tobin's Q (TQ). The study used the data of 1042 firms from 26 emerging countries from 2010 to 2019. The data was collected from Refinitiv ESG (formerly Thomson Reuter Asset4) and DataStream; and used the panel data regression technique such as fixed effects (FE), random effects (RE), and Feasible Generalized Least Square (FGLS) models. Results showed that pillar-wise, Environmental, Social, and Governance scores and aggregate ESG scores have a significant and positive impact on capital market response. To the best of author's knowledge, limited studies demonstrate the association between ESG practices and capital market response in emerging countries. Therefore, the current study has useful implications for investors, regulators , socially responsible analysts, and policymakers of emerging countries, as well as it is also essential for government agencies and other related agencies in emerging countries.
... Besides, Hong et al. have stated that firms with good environmental reporting performance will have reduced financial constraints. Cheng et al. (2014) reported that better social responsibility performance is associated with less financial constraint in firms. ...
... Besides, Hong et al. have stated that firms with good environmental reporting performance will have reduced financial constraints. Cheng et al. (2014) reported that better social responsibility performance is associated with less financial constraint in firms. Firms that produce more pollutions as a result of their activities are more inclined to disclose comprehensive environmental information to address the concerns of the investors (Cho & Patton, 2007). ...
... Investors are rational about the role that ESG plays in generating consistent returns on their investments (Kocmanová & Doekalová, 2012). ESG reporting increases the demand for shares and resultantly enhances share prices in the market (Cheng, Ioannou, & Serafeim, 2014 ...
... Businesses run more efficiently www.ijbms.org 41 when they increase their ESG compliance and transparency as responsible citizens of the community, which eventually attracts talent through enhanced social standing (Cheng, 2014 investments. Investors may experience positive or negative circumstances depending on whether they can accomplish the expected return on their investment (profit) or not. ...
... Despite missing data, Thomson Reuters Eikon provides accurate and reliable information (Cheng et al., 2014) and investment analysis tools for professional investors (Gómez-Bolaños et al., 2020). Furthermore, the complexity of the variables used in this study, such as international diversification, makes it more difficult to obtain a large number of observations. ...
... Second, although the Thomson Reuters Eikon database is considered a reliable source of information (Cheng et al., 2014), it can only include the information that firms are willing to disclose (Gómez-Bolaños et al., 2020). Hence, there is a need for caution when extrapolating on the conclusions of other firms within the region. ...
This study aims to examine whether Asia–Pacific firms use reporting environmental policies to reduce their liability of origin in the international arena. Furthermore, moderating effects of institutional and organizational innovations are captured as sources of legitimacy. A multilevel modeling technique was used to test the hypotheses. The sample was composed of 91 firms from 11 countries in 10 different sectors during the period from 2014 to 2018. Using institutional theory, the results show that the reporting of environmental policies has a significant positive impact on the firms’ scope of internationalization. The results reveal that high institutional innovation has a negative moderating role in the relationship between firms’ reporting of environmental policies and their scope of internationalization. However, it was found that organizational innovation does not exhibit a significant moderating effect on this relationship.
... To test our hypotheses, we used Thomson Reuters' ASSET4 database, as validated by previous research (e.g., Cheng et al., 2014). ASSET4 provides objective, auditable, and consistent data on the socio-environmental policies and actions of more than 6,000 firms, covering over 70% of global market capitalization. ...
... In line with prior research (e.g., Cheng et al., 2014) we used two instruments. The first instrument reflects the average greenwashing score of the country-industry cell that each firm belongs to (after excluding the score of the focal firm). ...
Organizational stigma is widely assumed to be a serious liability. However, a small body of research has begun to show that stigma can also lead to positive outcomes. A core assumption of this budding literature is that realizing a benefit from stigma requires firms to take active and strategic measures to turn stigma to their advantage. Shedding new light on this assumption, in the present research we show that stigma has a built‐in insurance‐like quality that buffers firms from the market consequences of their misconduct. Specifically, we demonstrate that when firms are caught greenwashing, organizational stigma protects them from consumer backlash, with no effort required on their part to realize this benefit. Across a longitudinal panel data study tracking 7,365 firms in 47 countries over a 15‐year period, plus an experiment, we show that stigmatized firms are subjected to less market discipline for greenwashing. We further demonstrate that the mechanism driving this phenomenon is a certain ‘boys will be boys’ expectation by consumers that stigmatized firms lack integrity and, by consequence, are given greater leeway to greenwash. In so doing, we move beyond prior research focusing on the strategies firms can deploy to leverage stigma to their advantage, highlighting instead the psychological mechanisms that make organizational stigma more than a liability to be overcome in the marketplace, but also an asset.
... The academia has discussed the factors affecting the social responsibility of enterprises. Much existing literature has found that debt financing (Jia, 2009) motivates companies to fulfill their social responsibilities, while other studies have shown that lower financing constraints (Cheng et al., 2014) are also important factors affecting corporate social responsibility. At present, there is no article to study how the relationship between enterprises and the government affects social responsibility from the perspective of the social network. ...
... Based on this theory, researchers contend that CSR improves a company's reputation (Benlemlih & Girerd-Potin, 2017;Stellner et al., 2015); fosters consumer loyalty; improves employee performance (Edmans, 2011(Edmans, , 2012 and affects financial performance (Arouri & Pijourlet, 2017;Brooks & Oikonomou, 2018). Moreover, by reducing agency costs and information asymmetry, CSR might lead to improve funding options (Cheng et al., 2014;El Ghoul et al., 2016). These findings are consistent with the literature's contention that businesses participate in CSR that maximizes profits (McWilliams & Siegel, 2001). ...
This study focuses on the implications of corporate social responsibility (CSR) on the strategic risk of the listed financial and non-financial firms in Nigeria. The population of the study consists of 154 firms, while the census sampling technique was adopted to arrive at an adjusted population of 133. The correlation research design was implored using a positivism approach. Descriptive statistics, correlation matrix, multiple regression, confirmatory analysis and T-test were used to analyze the data extracted from the annual report. Hence, the result of the study shows that corporate social responsibility has a negative impact on strategic risk. The confirmatory factor analysis found that CSR engagement influences strategic risk (SRK), but to varying degrees, contradicting findings from the Frontier Model, PCSE, and GLS that both sectors will have similar results if they engage in CSR effectively. It is therefore suggested that the management of strategic risks need to be more integrated in corporate strategy as the capacity to listen to business stakeholders' viewpoints on social and environmental issues becomes a competitive need.
... From this, a debate that had lost intensity is strongly emerging, namely, "stakeholderism" versus "shareholderism" (Bebchuk & Tallarita, 2020;Mayer, 2020), attempting to reflect on whether companies should maximize stakeholder welfare or shareholder value. In this sense, although there is no unanimity due to agency costs (Bae et al., 2021;Demers et al., 2020), in general, previous literature suggests that stakeholderism increases the value of a company for shareholders (i.e., Albuquerque et al., 2020;Borghesi et al., 2014;Cao et al., 2019;Dai et al., 2021;Deng et al., 2013;Flammer, 2015Flammer, , 2021Ferrell et al., 2016;Gao et al., 2021;Kim et al., 2019;Lins et al., 2017), especially in times of financial crisis (i.e., Bénabou & Tirole, 2010;Cheng et al., 2014;Di Giuli & Kostovetsky, 2014;Masulis & Reza, 2015). In this line, recent studies show the stock-return and the market value of companies decrease sharply with COVID-19 consequences, but this effect is less pronounced in firms with greater commitments to sustainability (i.e., Bose et al., 2022;Ding et al., 2021;Garel & Petit-Romec, 2021). ...
From a business perspective, the health and socioeconomic effects of the COVID-19 have affected a firm's stakeholders to a different extent, making it necessary for them to develop sustainable initiatives that allow them to meet their needs. Decisions must be made and implemented in a recessionary environment in which companies debate whether it is economically reasonable to promote them and whether they can afford not to do so. In this work, based on the theory of social identity, we argue that these business commitments will have been promoted in companies with boards of directors that have a greater female presence. The results obtained for a sample of 4821 multinationals confirm that the repercussion of incidental affect on the social identity of the in-group of female directors has partially slowed the setback that business sustainability has suffered due to the pandemic, which is especially important with respect to good governance policies and practices and guaranteeing the social and environmental commitment of previous years. This evidence has important theoretical and practical implications, contributing the current debate on strategic decisions regarding sustainability and the benefits associated with board gender diversity. K E Y W O R D S board of directors, COVID-19, female directors, social identity, sustainability, women
... where P i is the percentage share of the ith geographic segment (the MNE's subsidiaries located in country i) in the MNE's total subsidiaries in the focal year. Finally, we controlled for MNE governance, measured as the firm-level corporate governance score from the Thomson Reuters ASSET4 database (Cheng, Ioannou, & Serafeim, 2014), because an MNE is more likely to make related party transactions for tax purposes or to prop up poorly-performing subsidiaries if it is operating under weak governance. Third, we controlled for a set of host country effects, namely political stability/risk, cultural distance, market size and growth, institutional distance, R&D intensity, technological change, local competition intensity, and asset-augmentation FDI. ...
In anticipation of the upcoming changes and turbulence caused by Industry 4.0, in which digital integration connects all value chain members, managers at leading multinational enterprises (MNEs) are scrambling to predict the associated changes in the market. This pioneering study advances our understanding by investigating the impact of an MNE’s Industry 4.0 orientation on the globalization of its value chain network. Identifying two types of value-generation activities as potential moderators, namely value creation and value capturing, we compare the moderation effects when these activities are conducted by headquarters versus foreign subsidiaries. We test the proposed model using a panel dataset comprising 5572 subsidiary-year observations from 358 Korean MNEs from 2011 to 2019. The results show that an MNE’s Industry 4.0 orientation leads to a more rapid expansion of its distribution network than of its supplier network. Furthermore, value creation by headquarters has a stronger positive impact on the globalization of its distribution network than that of its supplier network, whereas value creation by subsidiaries has a stronger positive impact on the globalization of its supplier network than that of its distribution network. However, value capturing has a stronger impact on the globalization of the MNE’s distribution network than that of its supplier network when performed by both locations. This study concludes by discussing the theoretical and managerial implications.
... Corporate philanthropy is seen by shareholders as a misuse of corporate resources, which diminishes the company's value (Masulis and Reza, 2015). A successful ESG performance on the social and environmental aspects leads to lower agency expenses, which in turn lowers the financing cost for reporting organisations (Cheng et al., 2014). Integrating financial information into one report reduces information asymmetry, which helps lenders better estimate the risk of failure and decreases borrowing costs (Gerwanski, 2020). ...
... 2. Literature review and hypotheses development 2.1 Corporate social responsibility and firm performance Existing literature is inconclusive on the relationship between corporate social responsibility (CSR) activities and firm performance. Some of the studies find CSR as a value-enhancing activity for the firm (Cao et al., 2019;Dai et al., 2020;Flammer, 2015), whereas other studies document that CSR activities can reduce the firm value or even not related to the firm value (B enabou and Tirole, 2010;Cheng et al., 2014;Di Giuli and Kostovetsky, 2014;Masulis and Reza, 2015). The stakeholder perspective suggests that CSR activities enhance a firm's reputation and value by resolving the conflicts between managers and noninvesting stakeholders (Jo and Harjoto, 2011;Servaes and Tamayo, 2013). ...
Abstract
Purpose - COVID-19 induced uncertainty in the firms’ business transactions, financial markets, and product-market competition, causing a severe organizational legitimacy crisis. Using the organizational legitimacy perspective and agency theory, we study the relationship between prior corporate social responsibility (CSR) activities, monitoring cost, and firm performance.
Design/methodology/approach – We use a quarterly panel (16,924 firm-quarter observations from 61 countries for CSR and 53,345 firm-quarter observations from 55 countries for monitoring cost) for 14 quarters from January 2018 to June 2021. We use panel fixed-effect regression models to estimate the effect of CSR activities and monitoring cost (measured as audit fees) on firm performance during the COVID-19 period.
Findings - We find a U-shaped relationship between CSR and firm performance. This relationship is strengthened during COVID-19. In contrast, we find an inverted U-shaped relationship between firm monitoring cost and firm performance. However, this relationship is weakened during the pandemic.
Originality/value – Our study contributes to theory and practice on maintaining organizational legitimacy and reducing agency costs during the pandemic. This study shows that firms’ prior legitimacy-gaining practices, such as CSR activities and monitoring cost provide an opportunity to increase firm value. To balance agency costs and legitimacy benefits, firm managers also need to identify the optimal level of CSR activities and monitoring cost.
... The choice of using ESG scores to depict non-financial performance is consistent with the main stream of literature (Bodhanwala and Bodhanwala, 2021;Chairani and Siregar, 2021;Cupertino and Vitale, 2022). The ESG data were retrieved from the Refinitiv Eikon database, which is considered one of the leading global ESG databases (Cheng et al., 2014;Faizul, 2017;Qiu et al., 2016). The ESG scores were calculated according to a percentile-based methodology and an integrated analysis of social, environmental and governance performance of firms listed on international stock exchanges, covering more than 80% of global market capitalization. ...
Purpose
This paper aims to verify whether the integration of sustainability in executive compensation positively affects firms’ non-financial performance and whether corporate governance characteristics enhance the relationship between sustainability compensation and firms’ non-financial performance and to expand the domain of the impact of sustainability on non-financial performance.
Design/methodology/approach
This analysis is based on a sample of companies listed on the Milan Italian Stock Exchange from the Financial Times Milan Stock Exchange Index over the 2016–2020 period. Regression analysis was used by using data retrieved from the Refinitiv Eikon database and the sample firms’ remuneration reports.
Findings
The findings of this paper show that embedding sustainability in executive compensation positively affects firms’ non-financial performance. The results of this paper also reveal that specific corporate governance features can improve the impact of sustainability on non-financial performance.
Research limitations/implications
This analysis is limited to Italian firms included in the Financial Times Milan Stock Exchange Index; however, the findings are highly significant.
Practical implications
The findings provide regulators with useful insights for considering the integration of sustainability goals into executive remuneration. Another implication is that policymakers should require – at least – listed firms to fulfil specific corporate governance structural requirements. Finally, the findings can provide investors and financial analysts with a greater awareness of the role played by executive remuneration in the long-term value-creation process.
Originality/value
This paper contributes to addressing the relationship among sustainability, remuneration and non-financial disclosure, drawing on the stakeholder–agency theoretical framework and focusing on Italian firms. This issue has received limited attention with controversial results in the literature.
... Con respecto a la actitud de las PyMES hacia prácticas ambientales prevalecen dos puntos de vista, por un lado, se argumenta que las PyMES en comparación con las grandes empresas son reacias a participar en prácticas ambientales y perciben la RSE como una carga y una amenaza, por otro lado, las PyMES poseen características que pueden fomentar su participación en prácticas ambientales (Hoogendoorn & Guerra, 2015). La RSE tiene un impacto significativo en la asignación de capital, los participantes del mercado están más dispuestos a asignar los recursos a firmas con mejor desempeño de RSE (Cheng, Ioannou & Serafeim, 2013). La influencia de los trabajadores es una palanca para el cambio positivo hacia un comportamiento de RSE (Lindorff & Peck, 2010). ...
La presente obra es producto de los trabajos presentados en el V Congreso Internacional sobre Sustentabilidad, Competitividad y Gestión en las Organizaciones (CISCGO), bajo el lema: “Gestión estratégica: promotora de la sostenibilidad al valor compartido” realizado del 03 al 05 de octubre de 2019 en la ciudad de Mazatlán, Sinaloa, México. Este congreso tuvo como objetivo principal contribuir al análisis y a la reflexión sobre la sustentabilidad, la competitividad y la gestión organizacional. Esta quinta edición ratifica que el CISCGO es un escenario académico en el que se discuten, analizan y proponen soluciones alternativas para los problemas que enfrentan las organizaciones interesadas en ser competitivas y en desarrollar estrategias. Dichas propuestas se desarrollan atendiendo la dimensión social, ambiental y económica, lo que permite crar un espacio de reflexión en torno a los avances y nuevas formas de entender el desarrollo competitivo y sustentable de las organizaciones, con base en las experiencias exitosas a nivel local, nacional e internacional.
... In recent years, the interest in ESG data and its impact on a rm's performance has increased rapidly as more analysts and investors utilize ESG ratings for investment materials [5]. Furthermore, the ESG performance scores bene t the stakeholders of the rm to attain more transparent and reliable data on each dimension of ESG [6]. Thus, as more rms are disclosing ESG information, the disclosure of nonnancial measures and the ESG practices of the rm will continue to increase in the future [7]. ...
The interest of Environmental, Social, and Governance (ESG) scores is increasing in both academic research and industry practices. Many previous studies have examined the effects of ESG scores on the operating and market performance of firms but have found mixed results. The objective of this study is to provide a preliminary analysis of the effect of ESG scores on financial performances of the Korean multi-business group conglomerates, the Chaebols . Using a panel sample for fixed/random effects in regression analyses, this study investigates a sample of all the 32 Chaebol firms in the period of 2014–2019. Our results showed that the governance score of the firm has a positive effect on financial performances. Further, we analyzed the factors affecting governance scores of the firm in relation to board characteristics. Out of four independent variables, three showed significant results. These are CEO duality, the board size, and the average age of board members of the firms. The results remain consistent and significant after robustness testing.
... Most existing studies on the impact of CSR on firms' outcomes indicate that CSR engagement have a positive contribution to the firm's success by improving the firm's reputation and image, facilitating access to valuable resources, motivating employees and allowing for better market positioning (Cheng et al. 2014;Csapóné et al. 2015;Greening & Turban 2000). While some scholars propose a positive relationship between CSR and corporate performance, others argue that CSR is a complete waste or misallocation of resources that affect earnings and shareholder value (Barnea & Rubin 2010;Friedman 1962). ...
While corporate social responsibility (CSR) has been extensively explored from the standpoint of large corporations and developed economies, smaller businesses and developing economies have received little attention. Small and medium-sized enterprises (SMEs) continue to be the backbone of most economies, significantly accounting for a major share in economic value creation. This implies that the contribution of SMEs in achieving sustainable development is therefore critical. The study seeks to add to the limited literature by investigating the implication of socially responsible behavior on the performance of SMEs in Nigeria. Corporate reputation, profit maximization and management efficiency are dependent variables used as proxies for performance measurement. A well-structured questionnaire was administered to 63 Nigerian SMEs. The study adopted a structural equation model using SmartPLS for the data analysis. Findings show a significant relationship between corporate social responsibility and the three determinants of firm performance (management efficiency, profit maximization and corporate reputation). This study has implications for owners/managers of SMEs who are keen on improving performance by leveraging on socially responsible behaviour through the development, implementation and communication of a sustainable and acceptable CSR initiative. Recommendations and suggestions for further investigations are made.
... El cumplimiento de los objetivos planteados en esta propuesta doctoral permite dar ahora un paso adelante con la idea de seguir profundizando en futuras investigaciones en materia de sostenibilidad de países emergentes o poco explorados. En este sentido, proponemos elaborar estudios de orden exploratorio y empírico, tomando en cuenta la divulgación de información de CSR y vencimiento de deuda (Benlemlih, 2017), costo de deuda (Bhuiyan & Nguyen, 2020), acceso a capitales financieros considerando la calidad y aseguramiento de la información de RSC (Cheng et al., 2014;García-Sánchez et al., 2019), la divulgación voluntaria del reporte integrado como catalizador en la divulgación de información voluntaria por firmas ubicadas en países emergentes (Zhou et al., 2017), el cumplimiento progresivo de los ODS 2030 (Martínez-Ferrero & García-Meca, 2020) o la Resumen y Planteamiento General de la Investigación 48 divulgación ambiental de firmas contaminantes y su efecto moderador en la estimación de analistas y CoE (Yao & Liang, 2019). ...
... Jonathan et al. (2012) study also revealed that sourcing, attracting and screening were major determinants of employee performance of small and medium enterprises (SMEs) in Kisimu municipality in Kenya. The importance of advertisement to the overall success of the organization was supported by the the following studies (Weijia and Michael, 2016;Liban, 2015;Jonathan et al., 2012;Cheng, 2014 andAdeyemi et al., 2015). These positions were corroborated by the "signaling theory" which posits that job advert messages should be purpose driven. ...
The study examined the incidence of job advert on manpower resourcing in the public sector, perspective of Nigerian Maritime Administration and Safety Agency. The objective of the study is to evaluate the effect of job advert on manpower resourcing in public organization. Data were collected through structured questionnaire administered to 350 sample population. Correlation and multiple regressions analyses were used to analyse the relationships among variables and test the hypothesis respectively. The study revealed that job advert has a positive and significant effect on manpower resourcing in Nigerian Maritime Administration and Safety Agency. It thus concludes that job adverts through television, radio, newspapers, persons-to-persons and the internet channels affect manpower resourcing and employee's performance. The study recommends that organizations should develop a job advert communication model that identifies and attracts pool of applicants to apply for the vacant jobs since it leads to high recruitment intensity and the employment of capable and experienced manpower.
... Hence, additional investments in these domains are financially rewarding. These empirical findings corroborate on what would be expected from the stakeholder theory (Freeman, 1984) and the resource-based theory (Russo & Fouts, 1997 (Cheng, Ioannou & Serafeim, 2014) and attract socially responsible investors , which could allow companies to scale up. ...
... Higher information transparency is beneficial for firms to obtain trade credit from suppliers. Cheng, Ioannou, and Serafeim (2014) indicate that firms with high CSR levels have better financing opportunities than others because the practice of social responsibility can improve the transparency of the information that the companies provide to their stakeholders, thereby reducing agency costs and information degree of asymmetry. ...
Purpose
Corporate social responsibility (CSR) is significant in the financial market. Despite plenty of existing research on CSR, few studies have quantified the fine-grained aspects of CSR and examined how diverse CSR aspects are associated with firms' trade credit. Based on the released CSR reports, this paper strives to measure the CSR fulfillment of firms and examine the relationships between CSR and trade credit in terms of textual features presented in these reports.
Design/methodology/approach
This research proposes a natural language processing-based framework to extract the overall readability and the sentiment of fine-grained aspects from CSR reports, which can signal the performance of firms' CSR in diverse aspects. Furthermore, this paper explores how the textual features are associated with trade credit through partial dependence plots (PDPs), and PDPs can generate both linear and nonlinear relationships.
Findings
The study’s results reveal that the overall readability of the reports is positively associated with trade credit, while the performance of the fine-grained CSR aspects mentioned in the CSR reports matters differently. The performance of the environment has a positive impact on trade credit; the performance of creditors, suppliers and information disclosure, shows a U-shaped influence on trade credit; while the performance of the government and customers is negatively associated with trade credit.
Originality/value
This study expands the scope of research on CSR and trade credit by investigating fine-grained aspects covered in CSR reports. It also offers some managerial implications in the allocation of CSR resources and the presentation of CSR reports.
... As a form of nonmarket behavior, the effectiveness of CSR in reducing transaction costs and signaling trust has been widely studied (Fombrun and Shanley, 1990;Orlitzky et al., 2003;Walsh and Beatty, 2007;Brammer et al., 2008;Surroca et al., 2010;Gallego Á lvarez et al., 2011;Cheng et al., 2014). Prior studies have shown that investors associate firms investing in CSR with high transparency (Gelb and Strawser, 2001;Dhaliwal et al., 2012) and low short-term opportunism (Bénabou and Tirole, 2010), which in turn helps lower perceived agency costs and information asymmetry . ...
This study investigates, in the context of a weak institution, the single and interactive effects of firms’ nonmarket strategies in China’s government procurement market. Based on transaction cost and signal theory, using data pertaining to Chinese government procurement contracts from 2016 to 2018, this study also provides evidence that superior corporate social responsibility (CSR) performance enables firms to obtain more government procurement contracts. However, the effect is only significant in non-state-owned enterprises. Considering the interaction effect of corporate political activity (CPA) and CSR in business to government (B2G) markets, this study finds that CPA, characterized by the political attributes of executives, enhances the signal effect of CSR in B2G markets. Further heterogeneity analysis indicates that CSR’s signal effect diminishes over time and is enhanced with high industry competition. Our findings provide new insights on nonmarket mechanisms (such as CSR), through which firms competing in China’s B2G market can compensate for the weak institution.
... Further, inclusion of stakeholder values within corporate strategy may also result in increased shareholder wealth (Hillman and Keim, 2001). Indeed, Cheng et al. (2014) find that firms with stronger records in corporate social responsibility are not only more profitable but also enjoy greater access to financial support and lower capital constraints. While the benefits of stakeholder consideration have received ample attention within literature, the context surrounding the adoption of a stakeholder focus warrant further consideration. ...
This study analyzes whether firms face a tradeoff in responding to pressures of shareholders versus stakeholders in their quest for supply chain management excellence. Are firms that are recognized and rewarded for their supply chain management practices less likely than other firms to have a strong record in community relations, product qualities, employee relations, environmental sustainability and diversity measures? To answer this question, the study utilizes event study, OLS regression and panel data analyses of firms receiving a Gartner Supply Chain Top 25 ranking and a comparative sample of these same firms in non-ranked years. The findings indicate that shareholders react positively to a Gartner ranking, suggesting that ranked firms receive significant incentives to pursue recognition. Additionally, positive stakeholder practices are significantly stronger for firms ranked versus those not ranked. These findings suggest that firms can successfully navigate the pressures congruent with both shareholder and stakeholder priorities through supply chain excellence.
... Furthermore, CSR companies are better able to deal with information asymmetry (Cho et al., 2013;Cui et al., 2018) and agency issues (Cheng, Ioannou, & Serafeim, 2014), both of which have a significant impact on corporate innovation (e.g., Aghion, Van Reenen, & Zingales, 2013;Bhattacharya & Ritter, 1983). Because innovative projects are inherently risky and uncertain, they rely on expensive equity as their primary source of financing (Brown, 2011;Hall, 2002). ...
The literature is divided on whether corporate social responsibility (CSR) has an impact on firm innovation. For the first time in the Vietnamese context, using a quantile technique with panel data, this study investigates the types of corporate social responsibility (CSR) and their effects on business innovation. In this article, external and internal forms of CSR are found to be interconnected, and their adoption results in supercharged innovative performance. This research also adds to our knowledge of how digital transformation affects CSR and corporate innovation, implying a favorable relationship between CSR, digital transformation, and firm innovation. This means that even if effective institutions are lacking, firms can still be innovative by adopting CSR practices and adapting to changes in the digital world.
... Thus, implying that more diversified information (i.e., financial and non-financial information) in the economy could improve price information (Goldstein and Yang, 2015). ESG disclosure could engender many positive feedback loops such as reducing information asymmetry between firms' and related parties, enhancing transparency and visibility related to environmental, social and governance issues around the firm and further improving the internal governance mechanisms to serve the firm's stakeholders' interests, resulting in an increase in firm value in the long run (Cheng et al., 2013). How ESG disclosure influences firms' value has received much attention in the last decade. ...
The rising concerns about climate change and environmental degradation have urged various stakeholder to focus on sustainable investments that are facing a drag from the Covid-19 pandemic. Since environmental and Covid-19 challenges are global, it is critical to assess the interlinkages of sustainable investments. In this research, we employ the dependence, centrality, and dynamic network approach to examine the interdependence and its determinants across multiple countries between January 2009 and March 2021. The findings indicate France as the lead risk transmitter while Japan and Taiwan show risk reception among international markets. We observe an increase in dependence during economic turmoil notably in Covid-19 episode. The centrality network revealed the prominent significance of sustainable investments in the European countries that can be attributed to their exceptional efforts to combat the climate change. Finally, our results suggest that the volatility in gold prices is the key driver of interdependence of sustainable investments.
... Studies linking CSR and firm performance identify several ways in which CSR creates value for firms, such as better access to finance (Dhaliwal et al. 2011;Cheng et al. 2014), lower cost of capital (El Ghoul et al. 2011;Goss and Roberts 2011;Ng and Rezaee 2015;Tan et al. 2020), increased customer and employee satisfaction (Luo and Bhattacharya 2006;Servaes and Tamayo 2013), higher levels of institutional ownership (Dimson et al. 2015), and greater social capital (Lins et al. 2017) in firms with good CSR performance. Nevertheless, despite numerous studies examining the effect of CSR performance on various stakeholders, the relationship between CSR and firm value is still debated among researchers. ...
Voluntary nonfinancial environmental, social, and governance (ESG) disclosure is a rapidly growing and increasingly important topic that has attracted great attention from both academic researchers and capital market participants in recent years. The objective of this survey study is to provide a comprehensive review of the ESG disclosure literature in accounting research with suggestions for the future. Specifically, we organize the literature into four categories: motivations for and consequences associated with ESG information, in addition to disclosure- and user-level characteristics with the potential to affect the observed outcome of information disclosure. We also discuss the key role of nonfinancial rating agencies as a new type of ESG information intermediary in capital markets and suggest opportunities for future research.
... We measure the dependent variable (CFP) by the natural logarithm of return on average assets (ROAA) (Hull & Rothenberg, 2008). Our independent variable (CSR) draws from Thomson Reuters ASSET4 Environmental, Social, and Governance (ESG) ratings (Cheng et al., 2014). ...
Since stakeholders cannot directly observe corporate social responsibility (CSR) efforts, companies attempt to back up their increasing sustainability claims by sending CSR signals. The environment in which signaling takes place influences the credibility of the signals. Among the factors that make up the signaling environment, the overall exposure of the company to different stakeholders (i.e., stakeholder scrutiny) has been neglected by the literature. Using signaling and stakeholder theories, we argue how stakeholder scrutiny shapes CSR signals' credibility. We empirically analyze a sample of 5762 firms across several sectors from 23 developed countries from 2013 to 2017. Stakeholder scrutiny exercises a positive effect on the credibility of CSR signals through a mediated‐moderated impact of CSR (across environmental, social, and governance dimensions) on firm performance.
... To test for possible endogeneity bias due to reverse or simultaneous causality between the predictors and the dependent variable, we followed prior practice (Cheng et al., 2014) and categorised individuals into three groups based on their entrepreneurial intention scores. The low group included individuals whose scores for entrepreneurial intention were in the lower 25th percentile, the high group included individuals whose scores on entrepreneurial intention were in the upper 25th percentile and the medium group covered the remaining middle-level scores. ...
... How shareholders view the financial merits of attending to a broad array of stakeholder interests through CSR initiatives varies widely (DesJardine et al. 2022). CSR refers to a set of practices and policies that voluntarily internalize stakeholder concerns into a company's operations (Cheng et al. 2014), which goes "beyond the interests of the firm and that which is required by law" and "can be viewed as a form of investment" (McWilliams and Siegel 2001, p. 117). Whereas some studies suggest CSR improves firm financial performance by strengthening stakeholder trust and loyalty and improving corporate reputation (Flammer 2015), others conclude that CSR can impair firm performance and come at the expense of shareholders (Brammer and Millington 2008). ...
Activist shareholders face a challenging task in preemptively identifying executives who they perceive might destroy shareholder value—before harm is done. We develop a framework where activist shareholders resolve this problem by forming attributions about executives’ intentions based on their displays of agentic values, which reflect independence and control. For activist shareholders, a strong display of independence can evoke concerns that an executive will act without the regulation of shareholder input, and a strong display of control can create concerns an executive will engineer governance provisions to their own benefit. As such, we hypothesize that above-average agentic value displays by CEOs increase the likelihood firms are targeted by shareholder activists. Extending our theory, we argue the positive effect that agentic value displays have on attracting shareholder activism is stronger when CEOs permit higher spending on corporate and stakeholder investment, both of which can exacerbate shareholder harm when executed poorly. We also posit that activism campaigns driven by CEOs’ agentic value displays will largely come from activist shareholders seeking to exert their own control over agentic-speaking CEOs. Using data on shareholder activism campaigns at US-based companies from 2003–2018, we find support for our hypotheses. We discuss multiple theoretical implications for research on corporate governance, stakeholder management, and investor relations.
... The SCDBs literature have used agency theory broadly to explore topics including CSR (e.g. Cheng et al., 2014;Hong, Li and Minor, 2016), tax avoidance (e.g. Kovermann and Velte, 2019), acquisition (Agyei-Boapeah et al., 2019;Hagendorff, Collins and Keasey, 2007), and innovation (Wu, 2008b), among others. ...
This paper provides a comprehensive systematic literature review (SLR) of existing international accounting and finance research on the structure, characteristics, and diversity of corporate boards (SCDBs), as well as their effects on the corresponding corporate outcomes. Emphasis is particularly placed on synthesising and expanding current knowledge from both theoretical (i.e., economic and governance, regulatory, resource-oriented, and psychological/sociological) and empirical (i.e., multi-level antecedents of SCDBs and various themes of SCDB-related corporate outcomes) perspectives. Adopting the SLR method, we review 511 articles from 69 journals between the years 1973 and 2020. Our main findings are as follows. First, the majority of the papers in our SLR are descriptive in nature and/or use a single traditional theory (e.g., agency theory), rather than adopting an integrated multi-theoretical approach. Second, studies on the determinants or antecedents of SCDBs are scarce and have tended to focus on firm-and board-level issues rather than on institutional-and individual-level issues. Third, given the absence of crosscountry , mixed-methods, and qualitative investigations, current articles in our SLR suffer from methodological constraints, such as inconsistent definition and measurement, insufficient variables, and repetitive quantitative research methods. Finally, opportunities and a future research agenda are explored and outlined.
... Bloomberg scores firms' environmental and social performance range from 0.1 for companies that disclose a minimum amount of E&S data, to 100 for those firms that disclose every data point collected by them. This approach to calculating E&S performance is widely used in the literature (e.g., Cheng et al., 2014;. For other variables measurements, please see Table 1 for details. ...
The study examines the determinants of the quality of carbon reporting (QCR) by top listed firms of a developed country. Using a sample of the top 50 listed firms of New Zealand (NZ) sampled over a period of six years (2015-2020), the study measured QCR index using 14-items and analysed the data using regression analysis. The study finds that external factors, namely, carbon regulation (Emission Trading Scheme-ETS law), use of a standardised reporting format for non-financial reporting (GRI template), and environmental and social (E&S) performance, all positively influence the quality of carbon reporting. The study also finds that corporate governance attributes namely board diversity (women's representation on the board) and board size positively influence the QCR. Lastly, the study finds that top firms in NZ have many areas of improvement in reporting quality carbon information. The study is the first empirical research on QCR from NZ firms that evidences multiple institutional factors and governance elements as key explanatory factors driving towards making carbon reporting credible and reliable.
... Because our theoretical explanation relies on the historically situated conflict between the stakeholder and the shareholder logics, one might wonder whether similar results could be found in more-recent time periods, in which the stakeholder and shareholder logics appear to have become more complementary rather than competing (Flammer, 2013;Durand, Paugam, and Stolowy, 2019). Although negative perceptions of CSR still abound, particularly among investors with short time horizons such as activist hedge funds (DesJardine and Durand, 2020;DesJardine, Marti, and Durand, 2021), recent studies provide evidence of the strategic benefits to socially responsible behavior, including increased innovation (Flammer and Kacperczyk, 2016), reduced capital costs (Cheng, Ioannou, and Serafeim, 2014), increased employee retention and engagement (Flammer and Luo, 2017), enhanced political access (Werner, 2015), and improved community relations (Henisz, Dorobantu, and Nartey, 2014), all of which could increase a firm's competitiveness and long-term viability (Eccles, Ioannou, and Serafeim, 2014;Flammer and Bansal, 2017;Flammer and Ioannou, 2021). Thus what appears to have been a strategic liability in the early 1990s-a reputation for social responsibility-may now be a strategic asset to the firm Zavyalova et al., 2016). ...
We examine why organizations may at times decrease their performance after receiving a positive rating. We argue that in contrast to the prevailing assumption that organizations will strive for favorable ratings to achieve reputational benefits, incompatibility between a positive rating and a dominant institutional logic may cause recognized firms to question the perceived value of maintaining superior performance, thus leading them to strategically reduce their efforts on the rated dimension. Using a difference-in-differences design, we examine how companies responded to being rated as charitable organizations, an evaluation that we argue was generally perceived as incompatible with the dominant logic of shareholder maximization during the early 1990s. Our results suggest that firms that were rated as generous were more likely to decrease philanthropic contributions relative to firms that were not rated as generous. We also found this reaction to be amplified or attenuated by organizational and institutional factors that increased or decreased the saliency of the perceived incompatibility between the philanthropy rating and the dominant shareholder logic. These findings provide insights for scholarship on organizational reactivity and impression management and raise important questions for scholars and practitioners interested in improving the effectiveness of evaluation metrics as drivers of organizational performance.
... In more recent years this has been somewhat addressed through what it known as 'broad CSR' (Schwartz and Saiia 2012). In this respect some see CSR as having the potential to integrate people and planetary concerns into a company's core operations (Cheng, Ioannou, and Serafeim 2014). Reflecting the more traditional view of CSR, nearly all our executives thought of it as an add-on; an important device for keeping up a public image but not central to the business. ...
This paper explores organizational purpose as a distinct, emerging, practitioner-led concept
that places a specific meaningful motivation at the heart of organizations - even established
for-profits. Using a discovery-orientated, theories-in-use approach, the authors identify
organizational purpose as an organization’s meaningful and enduring reason to exist that
aligns with long-term financial performance, provides a clear context for daily decision
making, and unifies and motivates relevant stakeholders. Combining in-depth interviews with
extant theory and supporting artefacts, the authors provide a robust description of the
phenomenon, establish the concept’s uniqueness, identify antecedents and consequences,
propose intervening conditions, and offer insights into how firms can develop an
organizational purpose within their organizations. The paper ends with a discussion of the
implications of the concept for research and practice.
... In this case our first instrument is the average CSR rating of all firms in the same industry, excluding the focal firm. The rationale behind this instrument is that the CSR performance of other firms in the same industry also systematically influence CSR practices of the focal firm (Cheng, Ioannou, and Serafeim 2014;Ioannou and Serafeim 2014). Our second instrument is the average CSR score of all firms in the State (excluding the focal firm) where the focal firm's headquarters is located. ...
We assess whether social capital, captured by CSR, is an effective hedge against risks arising from political and market competition risk. Having a higher CSR score significantly reduces stock return volatility during political uncertainty, but not cash flow volatility. Meanwhile, CSR is also an effective hedge against stock return volatility that arises from peer competition. Finally, the hedging effect of CSR on stock return volatility is transient, but has a positive effect on firms’ future performance and growth opportunities.
En este trabajo analizamos el efecto conjunto que ejercen la digitalización y la responsabilidad social corporativa (RSC) sobre la banca. La digitalización y los esfuerzos decididos hacia la sostenibilidad son capaces de transformar la naturaleza de los bancos, reduciendo simultáneamente su tamaño y ampliando su cartera de negocios. La RSC contribuye a superar algunas de las consecuencias negativas de la digitalización que dificultan su potencial de transformación. En particular, la transformación digital conlleva ciertas dificultades como son la desventaja de lo nuevo, las amenazas de oportunismo percibidas por los clientes al operar en un entorno virtual (sin oficinas), la facilidad con la que los clientes pueden cambiar de proveedor financiero (costes de cambio) y la mala imagen derivada de la sustitución de empleos por tecnología. Nuestra hipótesis se confirma empíricamente con una muestra de 109 bancos multinacionales. Los resultados sugieren que la complementariedad entre la digitalización y la RSC en la banca puede constituir una forma efectiva de afrontar las desventajas de la digitalización, generando como resultado ganancias de productividad. Adicionalmente, dichas complementariedades suponen una estrategia de diferenciación frente a la amenaza competitiva de los nuevos entrantes tecnológicos.
Purpose – Primarily, this research aims to examine how and when firm-level corporate social responsibility (CSR) translates into individual-level attitudes and behaviors of employees under cross-level boundary conditions of firm-level family ownership (FO) and group-level ethical leadership.
Design/methodology/approach – Philosophically, the present research comes under the post-positivist paradigm, with a deductive approach. The multilevel, multisource and multimethod data for this research were collected by employing a time-lagged design through the survey strategy and from annual reports of 60 manufacturing firms in Pakistan. The multilevel path analysis was conducted using MPlus.
Findings – The authors found that organizational identification (OID) statistically and significantly mediates the impact of firms’ CSR disclosure on employees’ innovative job performance (EIJP). However, the partial mediation of OID between firm-level CSR perception and EIJP was noticed. Moreover, a firm-level contingency of FO and group-level ethical leadership further intensifies the impact of CSR disclosure and perception on EIJP through OID.
Research limitations/implications – Theoretically, this research widens the current understanding of employees’ reactions to firms’ CSR disclosure and perception by investigating the contingencies of firm-level FO and group-level ethical leadership. Practically, the managers can consider the underlying framework presented
in this research in defining CSR as the antecedent of the OID and EIJP. For example, organizations must deliberately concentrate on not only their CSR initiatives and engagements but also immense attentiveness should be given to CSR disclosure because disclosing CSR will assist the top management in achieving the desired workplace attitudes and behaviors of employees. This research will also help business leaders to understand the integration of CSR and ethical leadership while making CSR-related strategic decisions.
Originality/value – Existing research on CSR still needs advancement due to competing explanations, inconsistencies in the findings, and a lack of multilevel studies. Although few studies on CSR have considered multilevel aspects by devising and testing multilevel mechanisms but largely remained deficient concerning cross-level boundary conditions. Furthermore, the authors also noticed that the academic literature predominantly analyses the impact of perceived CSR either at the individual level or the firm aggregated level on employee attitudes and behaviors. However, research on the effect of organizational CSR disclosure on the behaviors and attitudes of employees remains scarce.
The study examines the causal links between earnings quality and corporate social responsibility (CSR) performance using a large sample of United States (US) firms from 1992 to 2013. We first find that the association between earnings quality and CSR performance is positive and significant. We then test the flow of causality using Granger’s (1969) lead-lag analysis to determine whether changes in earnings quality cause changes in CSR performance or vice versa. Our findings show that changes in earnings quality cause changes in a firm’s CSR performance but not vice versa. Further analysis shows that earnings quality reduces the cost of equity capital for firms with higher CSR performance. These findings suggest that one plausible explanation for firms with higher earnings quality to maintain better CSR performance is to reduce their cost of equity capital.
Research Summary
Whilst existing research generally assumes corporate social responsibility (CSR) is seen as universally positive, firms increasingly adopt practices, and take stands, on highly polarizing social issues (e.g., gun-control, LGBTQ rights, abortion). To better understand this phenomenon, we develop a theory about when firms will emulate, ignore, or oppose each other's CSR efforts, based on attributes of the underlying social issue (its salience and polarization), the level of market competition, and the substantiveness of CSR. Our theory predicts several distinct equilibrium outcomes, including the potential for social counter-positioning, whereby rival firms take advantage of socio-political polarization to horizontally differentiate by taking opposing stances on a polarizing issue. Counterpositioning is more likely when salience is high, but agreement is low, when markets are competitive, and when CSR is largely symbolic.
Managerial Summary
Firms increasingly find themselves drawn, willingly or not, to taking stances on a controversial social issue (e.g., gun rights, abortion), though doing so risks alienating (some) stakeholders. In this paper, we develop a theory of why, when, and how firms should take a stance on a polarizing issue. We argue that firms profit from doing so when (1) the issue is salient, (2) markets are competitive, and (3) the actions are mostly symbolic. We also show that taking a stance on polarizing issues creates opportunities for the firms' competitors to counter their ideological positioning, strengthening weaker rivals in the process. Thus, in competitive markets, taking clear stances on polarizing, salient issues can segment the market, increasing the profits of all firms, and, potentially, intensifying polarization.
We examine the influence of political uncertainty on the corporate social responsibility (CSR) of local firms in China. Political uncertainty refers to government officials' turnover. We find that these firms significantly increase their CSR activities when city government officials are changed or replaced. We also find that political uncertainty increases firms' attention to employee responsibilities, supply chain responsibilities, and environmental responsibilities. In addition, the turnover of government officials increases CSR activities due to the reduction or loss of political connections. The anti‐corruption campaign has also strengthened the influence of political uncertainty on CSR.
Unlike previous studies mainly focused on the economic impact of green innovation, this paper explores its social returns, denoted by the stakeholder engagement, given stakeholders can affect or are affected by the firm's low‐carbon transition. Drawing on the complementary view and the substitute view, our empirical results from China over the sample period of 2012 to 2018 found that more green innovation would crowd in stakeholder‐related activities, especially for the welfare improvement of customers and suppliers. However, better stakeholder relations do not bring positive economic returns given the weak social pressures and uncertain rewards for being socially responsible in emerging countries. By doing so, our study expands the theoretical knowledge about the social impact of green innovation, thus offering a practical guidance for firms to simultaneously manage their environmental performance, social performance and economic performance in China and, potentially, in other emerging countries which also pursue environmental transition and better stakeholder management.
This paper aims to contribute to the emerging debate on materiality with novel and original insights about the managerial and theoretical implications related to the adoption of GRI and SASB as reporting standards. Furthermore, the paper will evaluate the main drivers that favored the combination of the two standards by companies to develop new knowledge about the hierarchical relationship between financial and sustainability materiality.
Building on a sample of 2046 US Listed Companies observed during the period between 2017 and 2020, the research was conducted using quantitative methods. In particular, multinomial logistic regressions (MLR) were used to evaluate the differences between GRI and SASB’s adoption.
The analysis highlighted that financial and sustainability materiality are driven by different purposes. In detail, SASB’s adoption is driven by factors directly related to financial dynamics while GRI’s adoption is influenced by the existence of corporate governance mechanisms inspired by sustainable and ethical principles. Furthermore, the last analysis revealed that the combination of the two standards is characterized by the predominance of sustainability materiality.
To the best of our knowledge, this is the first empirical study about the relationship between financial and sustainability materiality.
Increasing numbers of reports reveal that planet Earth is at significant risk. There are mounting calls to address the damage caused by the unprecedented demand for land, energy and water and environmental destruction, which is attributed to escalating population growth and unparalleled, rising rates of economic growth. Society and its organisations now are expending the Earth’s resources much faster than they can be replenished. Consequently, over the past two decades, sustainability has become an important business issue; growing attention is being paid to organisations’ ecological and environmental performance; and to their impact on the climate and on local and global communities. A number of researchers broadly claim that organisations need to move from Traditional Business Models and adopt Sustainable Business Models, and to deliver a sustainable value proposition aligned with stakeholders’ economic, environmental and social expectations. To achieve this, organisations should expand their perceived stakeholders from customers and shareholders to include all other stakeholders who may be directly or indirectly affected by the organisation’s activities, such as the broader society and the environment. Organisations’ cultures have considerable influence on their attitudes to environmental and social sustainability; their commitment to sustainability; and their environmental and social performance. In order to develop and implement Sustainable Business Models, organisations need to understand their underlying cultural values and develop sustainability-related cultural characteristics. This chapter explains the role of organisational culture and its desired characteristics and discusses actions organisations can take to change their culture. It also discusses steps for embedding sustainability principles across the organisation.
Offered here is a conceptual model that comprehensively describes essential aspects of corporate social performance (CSP). The three dimensional model address major questions of concern: (1) What is included in the definition of CSR? (2) What are the social/stakeholder issues the firm must address? and (3) What is the organization's strategy/mode/philosophy of social responsiveness.
The first dimension is the source of the original four-part definition of CSR originated: economic, legal, ethical, and discretionary (later termed philanthropic). It was later presented at the CSR Pyramid (1991).
We argue that citizenship programs are strategic investments comparable to R&D and advertising. They can create intangible assets that help companies overcome nationalistic barriers, facilitate globalization, and outcompete local rivals. Program content selection reflects a balance between legitimation and differentiation, and choices are influenced both by local institutional environments that shape expectations of corporate commitment to citizenship and by the degree of customization required because of institutional distance. Citizenship profiles therefore enable the sociocognitive integration that global companies require to operate effectively across diverse local markets.
In this study, we hypothesize that institutions invest more heavily in companies with strong corporate social performance. Analysis indicated a significant, positive relationship between social performance and the number of institutions holding the shares of a company and a positive but insignificant relationship between social performance and the percentage of shares held by institutions. We conclude that improving a company's corporate social performance invokes no penalty in institutional ownership.
Drawing on propositions from social identity theory and signaling theory, we hypothesized that firms' corporate social performance (CSP) is related positively to their reputations and to their attractiveness as employers. Results indicate that independent ratings of CSP are related to firms' reputations and attractiveness as employers, suggesting that a firm's CSP may provide a competitive advantage in attracting applicants. Such results add to the growing literature suggesting that CSP map provide firms with competitive advantages.
Little empirical work has been done on the effect of stakeholder management on corporate performance. In this study, we contributed to stakeholder theory development by (1) deriving two distinct stakeholder management models from extant research, (2) testing the descriptive accuracy of these models, and (3) including important variables from the strategy literature in the tested models. The results provide supports for a strategic stakeholder management model but no support for an intrinsic stakeholder commitment model. Implications of these findings for management practice and future research are discussed.
Inconsistent findings have resulted from studies of the relationships among social disclosure, social performance, and economic performance of U.S. corporations. No clear tendency can be detected. The main reasons for these inconsistencies are: (a) a lack in theory, (b) inappropriate definition of key terms, and (c) deficiencies in the empirical data bases currently available. Suggestions are made as to how this situation can be improved.
In this paper we explore another potential factor limiting the entry and post- entry growth of firms, namely financial constraints. We first develop a stylized model in which entry costs as well as post entry growth potentials affect the entry decision, the size at entry, and the post entry expansion of firms. This model allows us to also assess whether financial development has a differential effect on entry by firms of different size, and also to analyze the impact of financial development on the post-entry growth of firms. A first prediction of
Stakeholder theory has been a popular heuristic for describing the management environment for years, but it has not attained full theoretical status. Our aim in this article is to contribute to a theory of stakeholder identification and salience based on stakeholders possessing one or more of three relationship attributes: power, legitimacy, and urgency. By combining these attributes, we generate a typology of stakeholders, propositions concerning their salience to managers of the firm, and research and management implications.
Several researchers have suggested that a talented, quality workforce will become a more important source of competitive advantage for firms in the future. Drawing on social identity theory and signaling theory, the authors hypothesize that firms can use their corporate social performance (CSP) activities to attract job applicants. Specifically, signaling theory suggests that a firm’s CSP sends signals to prospective job applicants about what it would be like to work for a firm. Social identity theory suggests that job applicants have higher self-images whenworking for socially responsive firms over their less responsive counterparts. The authors conducted an experiment in which they manipulated CSP and found that prospective job applicants are more likely to pursue jobs from socially responsible firms than from firms with poor social performance reputations. The implications of these findings for academicians and practitioners alike are discussed.
Acknowledgments: We are indebted to Desiree Schaan for her assistance with coding the articles. We also appreciate insightful comments by Christopher Marquis and Nitin Nohria, research assistance by Alyssa Bittner-Gibbs, and the collegiality of Janet Kiholm Smith and Daniel Turban for sharing additional information about their published studies.
We test the relationship between shareholder value, stakeholder management, and social issue participation. Building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder wealth by helping firms develop intangible, valuable assets which can be sources of competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value for shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value. Copyright © 2001 John Wiley & Sons, Ltd.
No. This paper investigates the relationship between financing constraints and investment-cash flow sensitivities by analyzing the firms identified by Fazzari, Hubbard, and Petersen as having unusually high investment-cash flow sensitivities. We find that firms that appear less financially constrained exhibit significantly greater sensitivities than firms that appear more financially constrained. We find this pattern for the entire sample period, subperiods, and individual years. These results (and simple theoretical arguments) suggest that higher sensitivities cannot be interpreted as evidence that firms are more financially constrained. These findings call into question the interpretation of most previous research that uses this methodology.
Stakeholder theory has been a popular heuristic for describing the management environment for years, but it has not attained full theoretical status. Our aim in this article is to contribute to a theory of stakeholder identification and salience based on stakeholders possessing one or more of three relationship attributes: power, legitimacy, and urgency. By combining these attributes, we generate a typology of stakeholders, propositions concerning their salience to managers of the firm, and research and management implications.
To examine whether corporate giving had changed during the 1980s, I studied charitable contributions in Minneapolis-St. Paul, Minnesota in 1979-81 and 1987-89. There was no support for hypotheses that charitable contributions had decreased, became more tightly coupled to market position, or were less influenced by chief executive officers' social networks. In neither period did the percent of sales to consumers affect contributions; labor intensities had a weak negative effect in 1979-81 and a strong negative effect in 1987-89; and in both periods social network ties to local philanthropic leaders, company performance, and size were positively related to giving, while CEO ownership had a negative effect. Only when firms came under the control of a large outside investor was the effect of network position on contributions significantly weakened.
We construct an index of firms’ external finance constraints via generalized method of moments (GMM) estimation of an investment
Euler equation. Unlike the commonly used KZ index, ours is consistent with firm characteristics associated with external finance
constraints. Constrained firms’ returns move together, suggesting the existence of a financial constraints factor. This factor
earns a positive but insignificant average return. Much of the variation in this factor cannot be explained by the Fama–French
and momentum factors. Cross-sectional regressions of returns on our index and other firm characteristics show that constrained
firms earn higher returns and that the financial-constraints effect dominates the size effect.
This paper provides an objective, empirically based approach for measuring corporate social performance (CSP) based on eight dimensions of social responsibility. The analytic hierarchy process, a multicriteria decision asking technique, was used to access the relative importance of the eight dimensions of CSP used in ethical investing.
Corporate social responsibility has been a topic of wide and speculative interest to both managers and academics. Little careful and systematic empirical research, however, has been done in this area. This article presents an analysis based on the food-processing industry, as well as two supporting studies, followed by theoretical explanation and normative implications. Middle ground is demonstrated to be the place occupied by the most commercially successful firms.
Nongovernmental organizations, activist shareholders, and "socially responsible" investment funds have launched a corporate ethics crusade that has pushed executives to consider more than just the bottom line. Goaded by media interest, however, NGOs prefer to shout solutions rather than engage in objective research. Worse, the symbiotic relationship they are forging with firms could backfire and harm the world's poor.
Equilibrium conditions for a firm marking decisions with respect to price, quality, and advertising expenditure. Theorems on optimal advertising and optimal quality with fixed prices.
We develop a dynamic multiequation model where firms make financing and investment decisions jointly subject to the constraint that sources must equal uses of cash. We argue that static models of financial decisions produce inconsistent coefficient estimates, and that models that do not acknowledge the interdependence among decision variables produce inefficient estimates and provide an incomplete and potentially misleading view of financial behavior. We use our model to examine whether firms are constrained from accessing capital markets. Unlike static single-equation studies that find firms underinvest given cash flow shortfalls, we conclude that firms maintain investment by borrowing.
We investigate the effect of a corporate culture of sustainability on multiple facets of corporate behavior and performance outcomes. Using a matched sample of 180 companies, we find that corporations that voluntarily adopted environmental and social policies by 1993 – termed as High Sustainability companies – exhibit fundamentally different characteristics from a matched sample of firms that adopted almost none of these policies – termed as Low Sustainability companies. In particular, we find that the boards of directors of these companies are more likely to be responsible for sustainability and top executive incentives are more likely to be a function of sustainability metrics. Moreover, they are more likely to have organized procedures for stakeholder engagement, to be more long-term oriented, and to exhibit more measurement and disclosure of nonfinancial information. Finally, we provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance. The outperformance is stronger in sectors where the customers are individual consumers, companies compete on the basis of brands and reputation, and in sectors where companies’ products significantly depend upon extracting large amounts of natural resources.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Using implied cost of capital derived from analysts' earnings estimates, I find that investors demand significantly higher expected returns on stocks excluded by environmental screens (such as hazardous chemical, substantial emissions and climate change concerns) widely used by socially responsible investors as compared to firms without these environmental concerns. I also document that firms with these environmental concerns have lower institutional ownership and are held by fewer institutional investors than firms without similar environmental concerns. These results suggest that exclusionary socially responsible investing and the consequent increase in the cost of capital is one channel through which environmental externalities can be internalized by the firm.
Based on Whitley’s “National Business Systems” (NBS) institutional framework (Whitley 1997; 1999), we theorize about and empirically investigate the impact of nation-level institutions on firms’ corporate social performance (CSP). Using a sample of firms from 42 countries spanning seven years, we construct an annual composite CSP index for each firm based on social and environmental metrics. We find that the political system, followed by the labor and education system, and the cultural system are the most important NBS categories of institutions that impact CSP. Interestingly, the financial system appears to have a relatively less significant impact. We discuss implications for research, practice and policy-making.
Using both multivariate regressions, simultaneous nonlinear equations and a discrete time hazard model, I find that the level of CSR in a firm, proxied by KLD scores, is a significant determinant of distress, even after controlling for previously identified drivers of firm distress. The relationship is robust to the endogeneity of CSR investments and free cash flow. The near monotonic relationship between CSR investments and distress suggests that there is informational value in the extra financial metrics used by CSR advocates.
This research note analyzes the relationship between indicators of corporate social and financial performance within a comprehensive theoretical framework. The results, based on data for 67 large U.S. corporations for 1982-1992, reveal no significant negative social-financial performance relationships and strong positive correlations in both contemporaneous and lead-lag formulations.
We test the relationship between shareholder value, stakeholder management, and social issue participation. Building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder wealth by helping firms develop intangible, valuable assets which can be sources of competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value for shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value. Copyright ? 2001 John Wiley & Sons, Ltd.
Dechow and Dichev (2002) model earnings quality as the magnitude of estimation errors in accruals, and provide empirical estimates of this construct based on the relation between accruals and cash flows. I characterize the innovation and limitations in this approach, and provide empirical evidence of measurement error in their empirical specification. I also adapt their model to assess the specification of the Jones' (1991) model and document that this model provides estimates of discretionary accruals that are significantly associated with cash flows, which are likely to be substantially nondiscretionary. I conclude with suggestions for future research on earnings quality and earnings management.
The effect of disclosure level on the cost of equity capital is a matter of considerable interest and importance to the financial reporting community. However, the association between disclosure level and cost of equity capital is not well established and has been difficult to quantify. In this paper I examine the association between disclosure level and the cost of equity capital by regressing firm-specific estimates of cost of equity capital on market beta, firm size and a self-constructed measure of disclosure level. My measure of disclosure level is based on the amount of voluntary disclosure provided in the 1990 annual reports of a sample of 122 manufacturing firms. For firms that attract a low analyst following, the results indicate that greater disclosure is associated with a lower cost of equity capital. The magnitude of the effect is such that a one-unit difference in the disclosure measure is associated with a difference of approximately twenty-eight basis points in the cost of equity capital, after controlling for market beta and firm size. For firms with a high analyst following, however, I find no evidence of an association between my measure of disclosure level and cost of equity capital perhaps because the disclosure measure is limited to the annual report and accordingly may not provide a powerful proxy for overall disclosure level when analysts play a significant role in the communication process.
Companies are increasingly asked to provide innovative solutions to deep-seated problems of human misery, even as economic theory instructs managers to focus on maximizing their shareholders' wealth. In this paper, we assess how organization theory and empirical research have thus far responded to this tension over corporate involvement in wider social life. Organizational scholarship has typically sought to reconcile corporate social initiatives with seemingly inhospitable economic logic. Depicting the hold that economics has had on how the relationship between the firm and society is conceived, we examine the consequences for organizational research and theory by appraising both the 30-year quest for an empirical relationship between a corporation's social initiatives and its financial performance, as well as the development of stakeholder theory. We propose an alternative approach, embracing the tension between economic and broader social objectives as a starting point for systematic organizational inquiry. Adopting a pragmatic stance, we introduce a series of research questions whose answers will reveal the descriptive and normative dimensions of organizational responses to misery.
Prior research suggests that Big 4 auditors provide higher quality audits in the U.S. in order to protect the firm's brand name reputation and to avoid costly litigation. In this study, we examine whether the perceived higher quality of a Big 4 audit is related to auditor litigation exposure or to reputation concerns. Specifically, we utilize an estimable proxy for financial reporting credibility - The ex ante cost of equity capital - To examine whether Big 4 auditors are perceived as providing higher quality audits (relative to non-Big 4 auditors) in the U.S., and in the less litigious (but economically similar) environments in other Anglo-American countries during the 1990-99 period. We find that a Big 4 audit is associated with a lower ex ante cost of equity capital for auditees in the U.S. but not in Australia, Canada, or the U.K. Our findings suggest that it is litigation exposure rather than brand name reputation protection that drives perceived audit quality.
Managing for Stakeholders: Survival, Reputation, and Success, the culmination of twenty years of research, interviews, and observations in the workplace, makes a major new contribution to management thinking and practice. Current ways of thinking about business and stakeholder management usually ask the Value Allocation Question: How should we distribute the burdens and benefits of corporate activities among stakeholders? Managing for Stakeholders, however, helps leaders develop a mindset that instead asks the Value Creation Question: How can we create as much value as possible for all of our stakeholders? Business is about how customers, suppliers, employees, financiers (stockholders, bondholders, banks, etc.), communities, the media, and managers interact and create value. World-renowned management scholar R. Edward Freeman and his coauthors outline ten concrete principles and seven practical techniques for managing stakeholder relationships in order to ensure a firm's survival, reputation, and success. Managing for Stakeholders is a revolutionary book that will change not only how managers do business but also how they recognize and evaluate business opportunities that would otherwise be invisible. © 2007 by R. Edward Freeman, Jeffrey S. Harrison, and Andrew C. Wicks. All rights reserved.
In 1984, R. Edward Freeman published his landmark book, Strategic Management: A Stakeholder Approach, a work that set the agenda for what we now call stakeholder theory. In the intervening years, the literature on stakeholder theory has become vast and diverse. This book examines this body of research and assesses its relevance for our understanding of modern business. Beginning with a discussion of the origins and development of stakeholder theory, it shows how this corpus of theory has influenced a variety of different fields, including strategic management, finance, accounting, management, marketing, law, health care, public policy, and environment. It also features in-depth discussions of two important areas that stakeholder theory has helped to shape and define: business ethics and corporate social responsibility. The book concludes by arguing that we should re-frame capitalism in the terms of stakeholder theory so that we come to see business as creating value for stakeholders. © R. Edward Freeman, Jeffrey S. Harrison, Andrew C. Wicks, Bidhan Parmar and Simone de Colle 2010.
For the last 30 years a growing number of scholars and practitioners have been experimenting with concepts and models that facilitate our understanding of the complexities of today’s business challenges. Among these, “stakeholder theory” or “stakeholder thinking” has emerged as a new narrative to understand and remedy three interconnected business problems—the problem of understanding how value is created and traded, the problem of connecting ethics and capitalism, and the problem of helping managers think about management such that the first two problems are addressed. In this article, we review the major uses and adaptations of stakeholder theory across a broad array of disciplines such as business ethics, corporate strategy, finance, accounting, management, and marketing. We also evaluate and suggest future directions in which research on stakeholder theory can continue to provide useful insights into the practice of sustainable and ethical value creation.
In the face of marketp ace polls that attest to the increasing influence of corporate social responsibility (CSR) on consumers' purchase behavior, this article examines when, how, and for whom specific CSR initiatives work. The findings implicate both company-specific factors, such as the CSR issues a company chooses to focus on and the quality of its products, and individual-specific factors, such as consumers' personal support for the CSR issues and their general beliefs about CSR, as key moderators of consumers' responses to CSR. The results also highlight the mediating role of consumers' perceptions of congruence between their own characters and that of the company in their reactions to its CSR initiatives. More specifically, the authors find that CSR initiatives can, under certain conditions, decrease consumers' intentions to buy a company's products.